Peter Costello

Treasurer

11 March 1996 - 3 December 2007

PRODUCTIVITY COMMISSION TO REVIEW CONTAINERISED AND BULK SHIPPING BETWEEN THE AUSTRALIAN MAINLAND AND TASMANIA

The Treasurer today announced that the Productivity Commission will undertake
a public inquiry of the current arrangements for containerised and bulk shipping
for Tasmania.

The Tasmanian Freight Equalisation Scheme, introduced in 1976, and the Tasmanian
Wheat Freight Scheme, introduced in 2004 to replace the previous scheme, aim
to assist in alleviating the freight cost disadvantage incurred by shippers
of eligible goods moved between the Australian mainland and Tasmania by sea.

The schemes have been subject to regular review and a number of changes over
time, however it is timely for a major inquiry with the aim of developing more
efficient long term solutions.

The inquiry will examine the effectiveness of the subsidy scheme arrangements
as a mechanism for addressing freight cost disadvantage to Tasmania, taking
into account the costs and benefits of the arrangements.

The Australian Government has consulted with the Tasmanian Government in formulating
the Terms of Reference for the review, given the significance of the schemes
to the Tasmanian economy.

The Productivity Commission will shortly release an issues paper and invite
expressions of interest from anyone wanting to participate in the review. Anyone
with interest in the inquiry is encouraged to make a submission to the Commission.

The Terms of Reference for the inquiry are attached. Further information about
the inquiry is available from the Productivity Commission at www.pc.gov.au or by phone
02 6240 3239.

MELBOURNE
21 March 2006

Contact: David Alexander
03 9650 0244

Terms of Reference

INQUIRY INTO THE SUBSIDISATION OF CONTAINERISED AND
BULK SHIPPING BETWEEN THE MAINLAND AND TASMANIA

Productivity Commission Act 1998

I, CHRIS PEARCE, Parliamentary Secretary to the Treasurer, pursuant to Parts
2 and 3 of the Productivity Commission Act 1998, hereby refer the current
arrangements for subsidising containerised and bulk shipping between the mainland
and Tasmania to the Commission for inquiry and report within nine months of
receipt of this reference. The Commission is to hold hearings for the purpose
of the inquiry.

Background

The Tasmanian Freight Equalisation Scheme (TFES) was introduced in 1976.
The Government’s objective was to establish a cost equalisation scheme
to alleviate the freight cost disadvantage incurred by shippers of eligible
non-bulk goods moved between the mainland and Tasmania by sea. Since its introduction,
the TFES and its subsidy rates have undergone review on several occasions,
in particular in 1985 and 1998. A key recommendation of the 1998 review of
TFES was that the key assistance parameters for TFES should be reviewed annually
and indexation adjustments applied as sea freight disadvantage changed over
time.

The Tasmanian Wheat Freight Subsidy Scheme (TWFSS) was introduced in 1989,
coinciding with the deregulation of the Australian domestic wheat market and
replacing the Tasmanian Wheat Freight Levy which had existed since 1959. In
the 2004-05 Budget, the TWFSS was ceased with eligibility criteria for the
TFES being extended to include containerised shipments of wheat. The Government
subsequently introduced the Tasmanian Wheat Freight Scheme (TWFS) for bulk
wheat shipments from 1 July 2004, with containerised wheat to remain eligible
for assistance via the TFES.

The Government wishes to undertake an independent review of these arrangements
to consider the extent of the continuing benefits as well as costs of these
schemes.

Scope of Inquiry

The Commission is to report on the merits and weaknesses
of the current arrangements for subsidising containerised and bulk shipping
between the mainland and Tasmania and provide recommendations on an appropriate
future approach and/or arrangements.

In making assessments in relation to matters in paragraph 4, the report
of the Commission should:

Report on the characteristics of the freight
task for containerised and bulk goods between Tasmania and the mainland
of Australia, including a comparison with the freight task between regional
centres and metropolitan centres on the mainland and related costs.

Quantify any comparative freight cost disadvantage for goods eligible
under the TFES and the TWFS, identify its primary causes and assess the
impact of that freight cost disadvantage on Tasmanian business in terms
of the cost of business inputs and access to markets on the mainland.

Assess the effectiveness of the current scheme arrangements as a mechanism
for addressing any freight cost disadvantage, including identification
of the costs and benefits, the impact on stakeholders, and any unintended
consequences or distortionary effects of the current arrangements.

Identify any alternative mechanisms that could more effectively address
any freight cost disadvantage, including assessing the full economic costs
and benefits of any alternative mechanisms.

In undertaking the inquiry, the Commission is to advertise nationally, consult
with key interest groups and affected parties, and produce a report.

The Government will consider the Commission’s recommendations, and
the Government’s response will be announced as soon as possible after
the receipt of the Commission’s report.